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Russia's central bank slashed its interest rate for a third consecutive policy session, in line with its guidance, and signaled more easing in future as growth remains below target and inflation expectations are elevated.
The Board of Directors, led by Governor Elvira Nabiullina, decided to cut the key rate by 25 basis points to 7.00 percent, the Bank of Russia said in a statement on Friday.
The previous reduction in the rate was a 25 basis points cut in July. In June, the bank had slashed the rate by a quarter-point, which was the first reduction since March 2018.
Inflation is slowing, while expectations remain elevated, the bank said. Headline inflation eased to 4.3 percent from 4.6 percent in July. Core inflation fell to 4.3 percent from 4.5 percent. Growth continues to remain below the central bank's expectations, driven by?weakening external demand for Russian exports on?the back of?a?global economic slowdown as?well as?by?weak investment activity dynamics, including government investment expenditures. The central bank cut the GDP growth forecast for this year to 0.8-1.3 percent from 1-1.5 percent. The projection for next year were also lowered. The pace of growth might accelerate to 2-3 percent by 2022, the bank said. While the risks of a global economic slowdown have increased, those of inflation accelerating or slowing down by year-end are balance, the bank added.
The central bank lowered its annual inflation forecast for this year to 4-4.5 percent from 4.2-4.7 percent. The bank expects inflation to remain close to 4 percent based on its forecast and monetary policy stance.
Significant risks are posed by?elevated and unanchored inflation expectations, the bank said.
"If?the situation develops in?line with the baseline forecast, the Bank of?Russia will consider the necessity of?further key rate reduction at?one of?the upcoming Board of?Directors' meetings," the Bank of Russia said. The next policy session is due on October 25.
